Today’s house building figures are fairly dire. The number of affordable homes built has fallen 26% year on year. The government will focus on housing ‘starts’ which have risen, especially in the private market (up by 16% year on year). The overall picture is of declining affordable house building and a recovering private market from a very low base.
The annual homes deficit – the gap between what we need and what we are building – is still well over 140,000 homes in England.
An excellent recent report by the Social Market Foundation on the politics of housing reminds us that not only are we building far fewer homes than we need annually, but that we’ve run up a housing debt over recent years of up to two million households. We need an ambition of at least 250,000 new homes per year to house the next generation.
So with overall supply still so dire, why are house builders sounding optimistic?
In short, the state guarantees and loans provided by the government (aka Help to Buy) are stoking up house prices. Higher prices means big private builders will build a few more homes. One major builder posting its profits in early October noted that the amount it was selling new homes for had risen 11% over the last year to £270,000, outstripping wider house price inflation and wages. More than a third of its sales were through Help to Buy.
This is all very well in the short term, but rising prices have to be paid by someone (that’s you and me). Pump priming mortgages is great for major builders, great for land owners, great for estate agents – but not so good for the next generation of home buyers.
There’s also a wider risk. When you take a historical look at the private house building market it becomes obvious that it has a boom and bust cycle in which the upswings get smaller and shorter, and the totals built ratchets steadily downwards (see below). Each new cycle leads to fewer homes being built overall, and each upswing in supply can only be achieved through higher and higher house prices relative to wages. This is a broken model.
In this context of ratcheting down from the private sector, we need new ways to boost home building. That’s why we welcome the new wave of interest in using development corporations to build new towns and garden cities. Development corporations have the ability to bring land into the market at lower prices which, if used in the right way, can guarantee more homes at a more affordable price.
We proposed looking at this model in our report Solutions for the Housing Shortage and as part of a wider package of investment and reform this could lead to a step-change in home building.
Encouragingly, the current emphasis on innovation and ambition is echoed across the political spectrum. The Liberal Democrats have long been champions of garden cities and the Conservative peer Lord Wolfson has recently launched a £250,000 prize for whoever can come up with the best design for a new garden city, with an emphasis on using clever models to reduce prices. And today’s announcement from Ed Balls that Labour will be looking at a generation of new settlements means a new consensus may just be emerging.
With private house building numbers rising it will be tempting for politicians of all stripes to say ‘job done’. The historical evidence, however, suggests that the current rise may be no more than a ‘dead cat bounce’. Bold ideas to build more homes are emerging. Let’s hope they stick.